We're in a bull market—keep buying, says technician

Stocks are ripping higher, and according to one technician the party is just getting started for one group in particular: the small caps.

"I think we have a great set-up for risk to continue to do well, and small caps are a terrific proxy for a risk indicator," Oppenheimer's Ari Wald said Monday on "Power Lunch."

"This is an [area] that's already broken out to the upside with broadening internal breadth," said Wald, while looking at a chart of the S&P SmallCap 600 index ETF, the IJR. "We have found that rallies highlighted with widening participation are the rallies that continue."

The IJR is up 12 percent in 2016, outpacing the S&P 500, but even with that outperformance Wald noted that a recent break in the index above $120 in the IJR could set the stage for a move up to $140 — roughly 14 percent higher than where the ETF is currently trading.

"To put is simply, we're in a bull market … keep buying," added Wald.

Trader Tim Seymour agreed that the small caps could continue to see gains, but cautioned that they are more dependent on the Federal Reserve than their larger counterparts.

"Tell me what the Fed is going to do and that's going to impact the small cap trajectory," said the managing partner of Triogem Asset Management. "Small caps are most at risk on a turn in Fed policy but still have the most to gain on the upside," he added. "You remove the Fed and remove credit concerns, and you get a sense that the market can actually see some broadening, then I think this is an environment where small caps should outperform."


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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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